Latin America Equity Issue: Nemak's Ps11.9bn IPO
Mexican auto parts maker Nemak’s Ps11.9bn (US$753.8m) IPO made a splash in an otherwise terrible year for Latin America’s equity markets by bringing the largest flotation of 2015 despite tough market conditions.
The stock sale offered investors a rare opportunity to gain exposure to a Mexican industrial, and one that has a leading market share in lightweight auto components.
“There had been a glut of real estate issues and this was the first time that a large industrial was coming to market – and a company that could say they are a global leader,” said Ian Taylor, who at the time was head of Latin America ECM, ex-Brazil, at Goldman Sachs, which led the deal with Deutsche Bank and JP Morgan.
The sale was made up of all new shares but, other than US$150m earmarked for growth plans, the proceeds were handed to existing shareholders Ford and conglomerate Alfa.
The flotation is the third-largest ever Mexican IPO, behind only the US$4.1bn issue by Santander Mexico in 2012 and miner Fresnillo’s US$1.77bn offering in 2008.
Already facing strong headwinds in June when investors were turning their backs on emerging markets, the issuer also had to contend with heightened concerns over the Greek debt crisis. Four days before the deal was scheduled to be priced, the Greek prime minister surprised the market by calling a referendum on its bailout.
The risk-off mood cast a pall over the market, sending the VIX up 35% and stocks of Nemak’s peers down by up to 6% the day before pricing on June 30.
“There was a lot of uncertainty in the market, but it didn’t have a big effect on orders,” said Alberto Sada, Nemak’s CFO. “Oversubsription was very healthy and that gave me the green light.”
And while the deal ultimately was priced at the bottom end of the Ps20–Ps23 range, the final valuation represented the highest forward EV/Ebitda multiple ever achieved in an auto sector IPO.
“Volatile market conditions meant new issues were very difficult for many companies,” said Taylor. “That is why it was pretty remarkable for a Mexico-headquartered auto supplier to achieve a valuation more than two times over [peers] and it was able to do that just a few days after Greece [announced the referendum].”
Leads positioned the deal as a growth story, taking advantage of the shift to lighter aluminium components as the auto industry seeks to comply with ever more stringent environmental regulations.
“Being a public company is a big step,” said Sada. “It diversifies our sources of funding and gives us the ability to tap this market for potential sources of cash and for future growth prospects.”